Domestic auto sales have remained resilient despite weakening consumer confidence, with the Korean Automotive Manufacturers Association (KAMA) announcing 1.9% year-on-year (y-o-y) growth for domestic vehicle sales in July, underpinned by new car models being released in the market. On a year-to-date basis, sales have come in at 840,914 units, representing 5.0% y-o-y growth.
Auto sales figures are largely in line with our expectations, and we maintain our forecast of 3.2% growth for 2014, based on a weaker H214. We are, however, raising our sales growth forecast for 2015 from 1.1% to 2.7%, on the back of an expected economic pick-up, with private consumption growth expected to come in at 5.0% in 2015, up from 3.4% in 2014.
Strikes Fuel Long-Term Production Woes
On the production side, plant workers at Hyundai and Kia held their first strike of 2014 in August, demanding higher wages and improvements in working conditions. With similar strikes in previous years resulting in output declines of 16.1% y-o-y and 25.9% y-o-y in 2012 and 2013 respectively for the month of September ( see 'New Labour Dispute Adds To Hyundai's Woes', April 23 2013), we foresee a short-term dip in production for September 2014, but maintain our full-year production growth forecast of 2.4%, hitting 4.6mn units.
Exports To Remain Resilient
In May, we highlighted that vehicle exports growth will remain resilient due to a recovery in Europe - boosted by tariff cuts, and rising demand in the US ( see 'Healthy Export Demand To Support Auto Production', May 14). This view has played out, with exports jumping 16.0% y-o-y in July due to a removal of the 2% tariff on Korean cars, with an engine capacity of 1.5 litres or more, being exported to the EU.